One of the policy areas on which the Labour Party has been very specific during this general election campaign is its approach towards North Sea oil and gas production.
The party has been clear that it will raise existing windfall taxes first slapped on North Sea oil and gas producers in 2022 by Rishi Sunak, when he was chancellor, taking the total level of tax from the current 75% to 78%.
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Ed Miliband, the shadow secretary of state for energy security and net zero, also proposes to take away tax reliefs Mr Sunak put in place alongside the windfall tax, to sugar the pill, which allowed producers to offset their investments in new production against their tax bills.
Mr Miliband, who has referred to these tax breaks as ‘loopholes’, argues this would bring the tax treatment of the British North Sea into line with that of the Norwegian North Sea. He is also proposing a ban on new oil and gas exploration licenses as part of what remains of his ‘green prosperity plan‘.
With Labour so far ahead in the polls, that is already having an effect on investment in the North Sea, with a trio of companies – Jersey Oil and Gas, Serica Energy and Neo Energy – announcing earlier this month that they are delaying, by a year, the planned start of production at the Buchan oilfield 120 miles to the north-east of Aberdeen.
Industry attacks
Serica, which on average has produced 43,781 barrels of oil or oil equivalent per day so far this year, sought today to remind politicians of the potential consequences of their actions.
David Latin, Serica’s chairman and interim chief executive, unleashed a furious attack on the proposals – telling shareholders: “I have been involved in this industry for more than 30 years and have worked all over the world.
“Other than when I was responsible for a company which had significant assets in a war zone, I have never encountered a situation which was so challenging when it comes to making investment decisions, and planning for the future more generally, as it is in the UK at present.”
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Reminding his audience that the UK consumes almost twice as much oil and gas as it produces, Mr Latin said that deficit would persist even as the country sought to reduce its consumption of hydrocarbons, with the gap being filled by imports.
He added: “These imports worsen our national balance of payments, only deliver jobs and taxes to foreign countries and, typically, have higher production and transportation carbon emissions by the time they get to our shores.”
Addressing misconceptions
Criticising the Conservatives for persisting with windfall taxes despite oil and gas prices having returned to historically normal levels and Labour for proposing to raise those taxes, Mr Latin said there were a number of misconceptions around the tax regime – not least the notion that the windfall tax is being paid largely by oil majors like Shell and BP.
He went on: “As to the claim that the tax is being paid by the “oil and gas giants”, it is in fact independent companies like Serica who are most affected. The ‘majors’ account for only around a third of UK production and the vast majority of their profits are made overseas and are not touched by increasing tax rates on UK production.
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Labour ‘not turning off the taps’ of oil and gas
“Indeed, for those companies such as Serica that continued to invest in their assets during periods of lower commodity prices prior to the invasion of Ukraine, the current fiscal regime represents a further punishment for risk capital committed to its portfolio during the very low commodity prices seen in the COVID period.
“Closing ‘loopholes’ in UK oil and gas tax seems to mean different things to different people.
“Whatever is meant, I wish to be crystal clear that reducing tax relief for capital expenditure below the rate at which tax is payable would make investment in the vast majority of UK North Sea projects unprofitable, meaning that these projects, and the jobs and tax revenues they would generate, simply will not happen.”
Union criticism of Labour
But criticism of Labour’s policy was also coming today from another direction.
Unite, the UK’s biggest union and traditionally Labour’s biggest financial supporter, also has concerns banning new oil and gas exploration licences that could force the UK to import more gas when it still has plenty of its own.
Today it published an open letter, urging a rethink on the ban, signed by nearly 200 local firms from Scottish towns dependent on the oil and gas industry – while some of those businesses joined Unite members in a demonstration outside Aberdeen’s Maritime Museum.
Unite members protest outside the Aberdeen Maritime Museum. Pic: Unite
Sharon Graham, Unite’s general secretary, said: “Until Labour has a concrete plan for replacing North Sea jobs and ensuring energy security, the ban on new oil and gas exploration licenses should not go ahead.
“Labour must not allow oil and gas workers to become this generation’s coal miners. Scotland’s oil and gas communities are crying out for a secure future and that is what Labour must deliver.”
However, while businesses are warning that Labour’s policy will drive investment elsewhere and unions worry about the impact on jobs and local communities in north-east Scotland, there are others who think the party could go further.
Offshore workers show support for Unite’s no ban without a plancampaign. Pic: Unite.
Not going far enough
While Unite was staging its demonstration in Aberdeen, some 50 protestors from a group calling itself Stop Polluting Politics were staging one of their own 553 miles to the south at the Labour Party headquarters in Southwark, southeast London.
They allege that the party has “financial ties to polluting corporations” and have criticised a decision by Rachel Reeves, the shadow chancellor, to accept a £10,000 campaign donation from Lord Donoughue, the Labour peer, who has in the past chaired the Global Warming Policy Foundation – a climate change sceptic lobby group.
They allege that Ms Reeves’s decision to ‘water down’ Mr Miliband’s ‘green prosperity plan’ in February this year was influenced by the donation – something Lord Donoughue himself has vehemently denied.
It all highlights how energy policy threatens to become a major headache for Labour should it win the election a week today.